Can a company have both conveyance allowance and fuel reimbursements?

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Please advise how much tax exemption can be claimed in fuel reimbursement.

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Hi @Malathy ,

The tax exemption on fuel reimbursement depends on the usage and the ownership of the vehicle. The exemption is governed by Rule 3(2) of the Income Tax Rules and is applicable when an employer reimburses an employee for fuel and maintenance expenses for official or mixed (official + personal) use.

1. Fuel Reimbursement Exemption for a Car Owned or Used by an Employee

If the employer reimburses fuel expenses for a car owned or leased by the employee, the following limits apply:

Car Engine Capacity Fuel & Maintenance Exemption (Per Month) Driver Salary Exemption (Per Month) Total Monthly Exemption
Up to 1,600 cc ₹1,800 ₹900 ₹2,700
More than 1,600 cc ₹2,400 ₹900 ₹3,300
  • If the car is used only for official purposes → The entire reimbursement is tax-free, but proper records (logbook, fuel bills, etc.) must be maintained.
  • If the car is used for personal purposes only → The entire reimbursement is fully taxable.
  • If the car is used for both official and personal purposes → The above exemption limits apply, and any excess amount reimbursed will be taxed as a perquisite.

2. Fuel Reimbursement for Two-Wheelers

  • There is no specific exemption limit prescribed for two-wheelers.
  • If the employer reimburses fuel expenses for a two-wheeler used for official purposes, it can be fully exempt provided proper records are maintained.
  • If the two-wheeler is used for personal purposes, the reimbursement is fully taxable.

3. Documentation Required for Tax Exemption

To claim tax-free reimbursement for official or mixed-use, the employee should maintain:

  • Fuel bills and maintenance invoices
  • Logbook of official trips (distance, purpose, date, etc.)
  • Employer’s policy outlining fuel reimbursement rules

Conclusion

  • For a car, exemption is ₹1,800 or ₹2,400 per month, plus ₹900 for a driver (if applicable).
  • For a two-wheeler, reimbursement is tax-free only if properly documented for official use.
  • If records are not maintained, the entire amount becomes taxable.

Sandeep

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